What Foreign Direct Investment Define and Importance for Country

Queconomics – The foreign direct investment define as investment made directly by foreign investors to a country with the aim of making a profit. Usually, foreign investors have taken an interest in the country’s economy before deciding to invest their capital.

This investment is usually in the form of investment in companies in the destination country by foreign investors.Thus, this investment model usually involves two or more countries. This investment is also considered as a medium or a tool in a world economic system whose dynamics are global.

The most common form of FDI is a joint venture which is a company owned by two or more countries. However, it should be noted that investments made in the stock exchange cannot be categorized as FDI.

Developing countries generally use FDI to help their economic growth. However, developed countries such as the United States or the European Union also need this investment.

Most developed countries receive this investment in the form of corporate acquisitions or mergers with larger companies with the aim of restructuring or refocusing their core businesses.

Ways to do Foreign Direct Investment Define

This investment can be done by buying a company that is already established in the destination country, but it can also be done by providing the capital needed by the country to build a new company.

FDI is also generally characterized by the purchase of shares of a company in a country of at least 10% by individuals or companies from other countries. If the purchase of shares is less than 10%, the IMF will define share ownership as a portfolio of shares of a person or a company only.

The last is the construction or purchase of factory construction, as well as the purchase of land by foreign investors. This form of ownership of buildings or land from foreign direct investment is generally full or almost full.

Foreign Investment Benefits

Foreign direct investment define as the key to international economic integration. This is because foreign investment creates a stable and long-lasting relationship between the two spheres of the country’s economy.

This investment, commonly known as global direct investment, is also an important channel for technology transfer between countries.

Foreign investment also allows domestic companies to promote their products to international markets because they have opened access to foreign markets.

This trade expansion can also be a tool for the economic development of a country. This includes the value of incoming and outgoing shares, as well as capital and income, flow from partner countries and industries.

Reasons for Countries Interested in FDI

One of the reasons why foreign direct investment define as attractive, one of which is because of the profits it brings. And perhaps, international sales become one source of profit margins that are much higher than other profits.

Unique products, as well as technological advantages, can provide more advantages, which some companies want to take advantage of to expand their sales overseas.

Some international markets are experiencing faster growth than others. Foreign direct investment is an important means of gaining a foothold in the rapidly growing international market today.

One thing that is the main goal is to increase sales and profits. Through foreign direct investment, sometimes a company can reduce the logistics costs of goods and services to customers.

In some countries, the operational cost of labor is usually lower so that foreign investment can reduce the production costs of a company. Especially if the raw materials have to be shipped remotely.

By placing production locations close to customer locations, transportation costs can also be reduced in order to increase export sales.

The many advantages of FDI cause this type of investment to be carried out even by developed countries. Understanding foreign direct investment define and its importance, it is not surprising that this investment is now being intensively carried out all over the world.

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